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Innovation Isn’t Just About

New Products
BY VIJAY GOVINDARAJAN AND JATIN DESAI

AB O U T T HE AU THORS
The innovation mindset isn’t just about product innovation.
Vijay Govindarajan is the Coxe
Some organizations have focused on product innovation for so long they don’t know how to Distinguished Professor at Tuck
innovate in any other areas. For example, in 2010, Microsoft—one of the world’s best product School of Business at Dartmouth
innovators for the last two decades—launched a social phone called Kin. The product was a College. He is coauthor of
complete disaster. Within six weeks of the launch, the entire product group was shut down, and, Reverse Innovation (HBR Press,
according to their earnings reports, Microsoft took at least a $240 million write-off. April 2012).
How could such a great product innovator strike out so fast? Jatin Desai is co-founder and
In today’s climate, it happens to the best. chief executive officer of The
Most organizations focus on building short-term product innovation engines. However, most Desai Group and the author
products have little sustainable competitive advantage and never generate a profit; those that of Innovation Engine: Driving
do are often quickly copied by the competition, negating any long-term advantage. The result: a Execution for Breakthrough
significant investment in product development, without a commensurate return on investment. Results.

To achieve sustainable growth, companies must better integrate product innovation with business
model, process, and service innovations.

Transforming a company requires a dedicated process for nurturing and commercializing valuable
ideas. This type of commitment to innovation—the surest way to achieve meaningful and lasting
differentiation—requires a dualistic mindset: the organizational ability to deliver near-term results
and also prepare for perpetual results year after year.

Barriers and Risk

Based on our field work with Global 2000 size companies, we have identified five barriers to
organizations achieving the dualistic mindset:

1. Absence of a required mindset to harvest and manage great ideas: Sony had the ideas and
engineering competence to build the first iPod equivalent, but it couldn’t commercialize
those ideas because of its own internal battles.

2. Lack or misalignment of resources available for investment in innovations: In a matrix

environment, many organizations compete for the same funds, which leads to duplication
of resources and results in inefficiencies and waste. The challenge is not that an organization
has insufficient resources to invest in innovation; the challenge, instead, lies in where to
most effectively funnel those resources, and how to do it. brought to you by

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Transforming a
3. Human capital assets which are under-utilized and disengaged from an organization’s
creative capacity: When organizations become huge, their pace of change and pace of action
company requires a
often slows down. This leads to lack of urgency. Larger organizations with many people
dedicated process
focused on execution can be slow to take risks and design new experiments. for nurturing and
commercializing
4. Broad product and delivery capabilities which dilute focus on emerging and disruptive
valuable ideas.
opportunities: In the financial services industry, since the mid-1980’s the typical company
has gone from handful of delivery channels (branches, relationship managers) to 15-20
channels (branches, direct mail, internet, national sales force, affinity marketing, etc.) while
expanding its product offerings tenfold. “Anytime, Anywhere” banking has become the price
of entry as providers strive to meet the need of large and diverse customer bases.

5. Organizational orthodoxies that hold on to the past and discourage risk-taking: Every
organization has organizational memory which can create complacency and prevent forward
progress. When memory becomes a way of life, it obstructs innovation and out-of-the-box
solution development.

Large organizations have more resources, more talent, and more market reach than the smaller
players. But we often see new start-ups coming in, and in due time, dominating an industry. Why
does this occur? Because the large-organization leaders have done little to remove the barriers and
risks above. They lack clear innovation intent.

Innovation Intent

Innovation intent answers the question, “What will innovation give me that nothing else will?”
It clarifies strategic direction for your innovation focus and efforts. It is top management’s
directional mandate on how the firm is going to win using innovation, articulated by
organizational leaders and the senior executive team (and sometimes the Board).

Here are five indicators of authentic innovation intent:

1. Innovation is considered as a clear differentiator for long-term growth and success.

2. Innovation is already part of the strategic vision and value-defined, and there is a strong
desire to make it part of everyone’s job.

3. There is clear, authentic sponsorship from the C-Suite for innovation and strategic
investments.

4. There is balance between the innovation and performance engines.

5. Senior leaders are committed to role-model innovation behaviors—in spite of pressure to stay
focused on the performance engine.

To help clarify innovation intent, pose these questions to your most senior leaders:

1. How much more cost savings can we squeeze out of our current business? Are the
incremental savings worth the time spent by managers?

2. How much more top-line growth can we achieve out of our current business? Is the cost of
new-customer acquisition going up?

3. To generate real wealth, how many share-increasing-tactics remain to be tested beyond the
ones already tried, such as buy-backs, spin-offs, and other forms of financial engineering?

4. To achieve scale, how many more mergers and acquisitions can be absorbed before altering
the business model and losing strategic focus?

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Innovation intent
5. How different is the business model and the value proposition it offers compared to others in
the marketplace?
must be vividly clear
for everyone in your
Innovation intent must be vividly clear for everyone in your organization, especially at the top. organization
The intent must be concise to help drive alignment to business initiatives and must help articulate
specific employee behaviors necessary at all levels for an innovation climate to take root. When
designed correctly, innovation intent is clearly linked to and driven by the business strategy.

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